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China economy in 'sweet spot' despite slow exports

China's exports rose in November at a much weaker pace than expected and imports were flat compared with a year earlier, taking some shine off weekend data that suggested a revival in the world's second-biggest economy was deepening.

Exports rose 2.9 per cent from a year earlier, well below expectations for a 9.0 per cent increase and October's 11.6 per cent pace, customs figures showed on Monday. Imports were unchanged on the year, weaker than forecasts for a 2.0 per cent increase.

The data represented the weakest performance for exports and imports since August.

"The export slowdown shows external demand faces uncertainty due to concerns over the fiscal cliff in the US," said Zhang Zhiwei, chief China economist at Nomura in Hong Kong. "Nonetheless it does not change our view that growth is on track for a strong recovery in Q4, as (growth) is mostly domestically driven."

The trade data follows government figures on Sunday that showed industrial output rose a higher-than-expected 10.1 per cent in November from a year earlier, the fastest pace since March.

The weekend figures also showed consumer inflation bounced off a 33-month trough, but remained at relatively low levels, and that retail sales growth picked up.

"The Chinese economy is now in a sweet spot and can stay in the sweet spot through the first half of 2013," Ting Lu, an economist at Bank of America-Merrill Lynch, said before the trade figures were released. "Beijing will be happy to sustain the current policy stance."

Hurt by wilting export growth and lacklustre domestic demand partly owing to measures to cool down a hot property market, growth hit a three-year low of 7.4 per cent in the July-September quarter and is poised this year for its weakest expansion since 1999.

The People's Bank of China, the central bank, cut interest rates in both June and July and has lowered banks' reserve requirement ratio (RRR) by 150 basis points since late 2011, freeing an estimated 1.2 trillion yuan ($193 billion) for lending.

China's economy is expected to grow in 2012 by 7.5 per cent - in line with a government target - before picking up to expand 8.5 per cent in 2013, the Organisation for Economic Co-operation and Development said in a November report.

Like factory output, retail sales were also stronger than expected. The 14.9 per cent gain was above forecasts for a 14.6 per cent increase. Analysts had expected industrial output to expand by 9.8 per cent.

Fixed asset investment, or spending in such areas as bridges, factories and housing, rose 20.7 per cent in the first 11 months of the year over the same year-earlier period. That compared with expectations for a 20.8 per cent gain.

Sunday's inflation report showed China's consumer price index rose 2 per cent in November from a year ago, slightly less than forecasts for a 2.1 per cent gain. Vegetable prices soared 11.3 per cent.

Although that leaves consumer inflation well below Beijing's 4 per cent target for 2012, the central bank has said rising prices represent the biggest risk long term as China makes a transition from a planned to a market-based economy.

Underlining its worries about consumer and property inflation, the central bank has not cut interest rates or the RRR since July. Instead it has used open-market operations to manage cash in the economy to try to target its impact more precisely.

November's data showed price momentum may also be changing in industry.

Factory-gate prices fell 2.2 per cent in November from a year earlier. It marked the ninth straight month of decline but was the second month that deflation narrowed after September's 3.6 per cent drop, the steepest in nearly three years.